Business

Federal Reserve cuts interest rates for second consecutive meeting

Published

2 hours ago

November 7, 2024

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The Federal Reserve cut its benchmark interest rate by a quarter-point amid uncertainty about the outlook for the world’s largest economy following Donald Trump’s decisive victory in the US presidential election.

The unanimous decision lowered the target range to 4.5-4.75 per cent and marked a downshift in the pace from September’s half-point cut, which rate-setters made to stave off weakness in the US jobs market.

In a statement on Thursday, the Federal Open Market Committee said that the economy was expanding at a “solid pace” even as labour market conditions had “generally eased” compared with earlier in the year.

The FOMC continued to characterise inflation as “somewhat elevated”, affirming that the risks to achieving both low, stable inflation and a healthy jobs market were “roughly in balance”.

The Fed’s two-day meeting started on Wednesday, a day later than usual due to Tuesday’s US election, in which the Republicans trounced Democrats.

Trump has proposed sweeping tariffs, mass deportations of immigrants and extensive deregulation in addition to lower taxes for the wealthy and businesses.

While stock markets have soared on expectations of bigger corporate profits, economists say the president-elect’s plans risk not only higher inflation, but also slower growth.

Fed chair Jay Powell refused to be drawn on how the central bank would respond to the next administration, saying that it was too early to judge what the substance of the Trump government’s economic policies would be.

“We don’t guess, we don’t speculate, and we don’t assume,” Powell said at his post-meeting press conference.

In addition to clinching the White House, Republicans captured the Senate and could hold a majority of seats in the House of Representatives too.

While the US central bank is an independent institution, the president-elect lambasted rate-setters for not cutting borrowing costs swiftly enough during his first term.

Trump will have the opportunity to nominate a new chair once Powell’s term ends in May 2026, with only one other seat on the seven-seat board of governors coming up between now and the end of his second term.

Some of Trump’s advisers have called on the president-elect to ask Powell to step down early. When asked whether he would agree to do so, Powell emphatically said “no”. He added curtly that it was “not permitted under the law” for a new administration to dismiss him ahead of the end of his term.

The initial market reaction to the Fed decision was relatively muted, with the S&P 500 holding on to earlier gains of 0.6 per cent.

The policy-sensitive two-year yield on US Treasuries fell by 0.04 percentage points to 4.23 per cent after the announcement, while the benchmark 10-year yield was 0.06 percentage points lower at 4.36 per cent. Those moves marked a partial reversal of a sharp rise in the US government’s cost of borrowing a day earlier, as bonds sold off following Trump’s victory.

Fed officials are debating how quickly to lower interest rates to a “neutral” setting that neither boosts nor suppresses demand, while keeping inflation steady at the central bank’s 2 per cent goal.

Powell stressed that the US’s economic health meant the right way for rate-setters to get to neutral was “carefully” and “patiently”.

“Nothing in the economic data suggests that the committee has any need to be in a hurry to get there,” he told reporters. “We are seeing strong economic activity. We are seeing ongoing strength in the labour market.”

Inflation has fallen dramatically since peaking at about 7 per cent and is now close to 2 per cent. The labour market has cooled off but stayed solid — defying expectations of a more substantive slowdown.

Economists said October’s jobs report, which showed employment growing by just 12,000 positions, was an aberration, reflecting distortions stemming from two hurricanes and labour strikes.

The Fed has opted against providing specific guidance about what will happen to rates next — saying it will act on the data.

Additional reporting by Harriet Clarfelt in New York

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Business

Chinese exports soar as Beijing prepares for Trump’s tariff threats

Published

21 mins ago

November 7, 2024

NewsAdmin

Montage showing Donald Trump with an American flag backdrop, framed by a red map of the US

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In today’s newsletter:

Good morning. China’s exports soared in October and its trade surplus ballooned, official data showed yesterday, just days after Donald Trump won the US presidential election with promises of sweeping tariffs to suppress imports from China.

The bumper export figures are expected to inflame tensions between Trump’s incoming administration and Beijing. The president-elect, a self-described “Tariff Man”, is expected to move quickly and “ruthlessly” in threatening the US’s trading partners with steep levies on their imports once he takes office, say former trade officials and advisers.

Trump has threatened levies of up to 20 per cent on all imports and 60 per cent on those from China — measures that are more stringent and broader than those deployed during his first term in office.

China’s October export surge was probably partly because “the prospect of a Trump victory” and anticipated tariffs spurred exporters to front-load shipments, said Shuang Ding, head of greater China economic research at Standard Chartered.

Analysts said China’s burgeoning trade surplus — which hit $95.7bn in October compared with forecasts of $75bn — would provoke Trump.

“Of course China will be on top of the list,” said Wang Dong, executive director of the Institute for Global Cooperation and Understanding at Peking University. “The stability, the relative improvement that we have been witnessing . . . will probably come to an end.” Here’s how Beijing could respond to aggressive new tariffs under a second Trump administration.

Trump’s victory continues to reverberate around the US and the world — here’s more coverage:

Japan: The country’s top currency diplomat said the government was ready to take action against “excess moves” in the yen as Asian currencies showed further weakness against a resurgent US dollar in the wake of Trump’s victory.
‘Brave new world’: Trump’s re-election threatens to accelerate the end of the US-led postwar order — if not render it irrelevant.
Blame game: Joe Biden called on Americans to “bring down the temperature” in US politics, as Democrats began pointing fingers over Harris’s heavy defeat against Trump. Some critics say the party misread voters.
From felon to president-elect: Trump, a twice-impeached convicted criminal, defied assassins and the political odds to win back the White House.

Sign up for our White House Watch newsletter for more analysis on the far-reaching repercussions of Trump’s second term. And here’s what else we’re keeping tabs on today and over the weekend:

Economic data: Japan reports household spending for September and Taiwan releases October trade figures. China reports October inflation data on Saturday.
Results: Tata Motors and Sony report earnings.

How well did you keep up with the news this week? Take our quiz.

Five more top stories

1. Nissan has launched an emergency turnaround plan that includes 9,000 job losses and a voluntary 50 per cent pay cut for chief executive Makoto Uchida after unveiling it had fallen to a quarterly loss. Japan’s third-largest carmaker said it would slash global production capacity by 20 per cent. Read more about the troubles at Nissan.

2. The US Federal Reserve cut its benchmark interest rate by a quarter point yesterday, marking a decline in the pace from September’s half-point cut. Its chair Jay Powell hailed the strength of the US economy and said he would not resign if Donald Trump asked him to.

3. Bangladesh has staved off more power cuts by India’s Adani Group after supplying the conglomerate with a new credit letter and reassurances that it will clear its mounting electricity bill. Billionaire Gautam Adani’s group began reducing electricity supplies to Bangladesh last week over a backlog of overdue payments estimated by the group to be about $850mn.

4. German opposition leader Friedrich Merz has called for snap elections as early as January following the collapse of Olaf Scholz’s government. Merz rejected the timetable set out by the German chancellor after he broke up the governing coalition, plunging Europe’s largest economy into political turmoil.

5. Volodymyr Zelenskyy has said it would be “unacceptable” and “suicidal” for Europe to ask Ukraine to make concessions to Russia in exchange for a potential peace deal. The Ukrainian president’s comments came at a European security summit hosted by Hungary’s Prime Minister Viktor Orbán, who has broken with EU and Nato policy to push for immediate peace.

The Big Read

In the end, it wasn’t even close. A presidential election long forecast to dance on a knife’s edge very quickly turned into a rout for Donald Trump. Today’s Big Read has the five maps and charts that show how the Republican candidate defied conventional assumptions about his support and redrew America’s political map.

We’re also reading . . .

The lure of the strongman: Trump has fundamentally shifted the norms and ideology of American politics, writes Gideon Rachman.
Australian business scandals: A spate of controversies has put the country’s boards on notice, Nic Fildes explains.
World trade: Just how dependent is the world trading system on the US? We’re about to stress-test the question with Trump headed back to the White House, writes Alan Beattie.

Chart of the day

With their crushing defeat in this week’s US election, the Democrats joined Britain’s Tories and Japan’s Liberal Democrats in 2024’s graveyard of incumbents in an unprecedented year of elections, writes our chief data reporter John Burn-Murdoch.

Take a break from the news

Our Lego-loving food writer Tim Hayward dined at the Mini Chef café at the toymakers’ Danish headquarters. A meal prepared by tiny plastic people sparked a revelation about hospitality.

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Business

More growth, inflation and uncertainty: the BoE’s Budget verdict

Published

43 mins ago

November 7, 2024

NewsAdmin

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The Bank of England has delivered its verdict on Rachel Reeves’ Budget: it will bring higher growth and higher prices in the short term, and new uncertainty over the outlook for the economy further ahead.

The UK chancellor’s £70bn boost to spending has reinforced the monetary policy committee’s caution about the scope for further interest rate cuts, following the reduction from 5 per cent to 4.75 per cent on Thursday.

Budget measures will add 0.75 percentage points to GDP and around 0.5 percentage points to consumer price inflation in a year’s time, the MPC said. But the impact of the biggest tax change — the £26bn increase in employers’ national insurance contributions — is much harder to assess.

Policymakers, already wary of cutting rates too fast in the face of persistent wage pressures, want to see how businesses respond to a change that will make it much more expensive to hire low-wage workers.

“A gradual approach to removing monetary policy restraint will help us to observe how this plays out, along with other risks to the inflation outlook,” governor Andrew Bailey told reporters on Thursday.

The MPC’s new forecasts show consumer price inflation will be running at 2.7 per cent in the final quarter of 2025 — well above its previous forecast of 2.2 per cent. It will fall below the 2 per cent target only in mid-2027, a full year later than the committee expected in August. The higher inflation is largely because of the combined effects of the Budget measures.

The main driver is the big, front-loaded increase in government consumption and investment, which will pump up demand in the near-term, while any improvements in the supply capacity of the economy will take much longer to materialise.

The MPC now expects spare capacity in the economy to open up later, and to a smaller extent, than it expected in August — on the face of it pointing to a slower pace of rate reductions in the coming quarters.

The inflation forecasts also reflect the direct effects on prices of the rise in the cap on bus fares, the introduction of VAT on private school fees and the increase in vehicle excise duty, which will all take effect next year.

Plans to increase fuel duty in line with inflation from 2026 are also factored into the BoE’s new forecast, although previous chancellors have repeatedly failed to follow through on fuel duty uprating.

Far more uncertain, however, is the effect of the chancellor’s big tax hike on businesses through employers’ national insurance contributions.

Employers could respond in several ways, Bailey said: by raising prices, accepting lower profits, improving productivity, holding down wages or cutting employment. The overall effect was unpredictable as it would rely on the strength of consumer demand and workers’ bargaining power.

“There is obviously a lot we will learn about the effects of the Budget as they pass through. It’s important we all have the time to do that,” he said.

Clare Lombardelli, the BoE’s deputy governor for monetary policy, noted that the effects would differ between sectors: “It is very uncertain . . . we will want to observe it and talk to businesses about precisely how they plan to respond.”

The BoE’s task will be all the harder because poor data means it is still very hard to assess how strong the jobs market is, and whether workers are in a position to resist attempts to squeeze their pay.

Economists said it was striking, given the material impact of the Budget measures, that the BoE had not signalled any change in its policy stance, with Bailey saying it would not be right “to conclude that the path for interest rates will be very different due to the Budget”.

Its forecasts are premised on market expectations for interest rates in the run-up to the Budget, which implied the benchmark rate would fall to 3.5 per cent in three years.

Since that forecast was finalised, market expectations for bank rate at the end of 2025 have risen by nearly 0.5 percentage points.

But Sandra Horsfield, economist at Investec, said the implications of the two major developments since the BoE’s August forecasts — the UK Budget and US election — remained far from clear.

She said: “The MPC has chosen a middle path as its baseline, but stressed uncertainties on both sides — and its willingness to react should that judgment be wrong.”

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Travel

Time-warp northern English ‘town’ named top festive day out – with train station grotto and retro Christmas treats

Published

46 mins ago

November 7, 2024

NewsAdmin

Beamish, a huge open-air museum in the north of England, has been named a top place for a festive day out

A HUGE open-air museum has been named one of the UK’s top Christmas breaks for 2024.

Visit England named Beamish as one of eight “uber-festive” places Brits should visit this year.

Rooms inside the replica buildings are decorated with retro Christmas decorations like paper chainsCredit: Alamy

According to Visit England, the eight attractions each offer something different from “festive light trails with your mates, Christmas afternoon tea with your mum, romantic evenings at German Christmas markets and December days out with the kids to meet Santa”.

And one of the places in Visit England‘s top picks is the “living museum” of Beamish in County Durham.

The huge open-air museum allows visitors to see what life would have been like in the UK between the 1820s and 1950s.

From November 23 until December 24, its replica homes, pubs, shops and businesses will be transformed into a huge festive attraction.

Nationwide, Halifax and Lloyds Bank reduces mortgage rates after Bank of England interest cut – see the full list

Published

48 mins ago

November 7, 2024

NewsAdmin

Nationwide, Halifax and Lloyds Bank reduces mortgage rates after Bank of England interest cut - see the full list

MORTGAGE lenders have raced to slash their rates after the Bank of England cut interest rates to 4.75% this afternoon.

This move will immediately benefit thousands of mortgage customers with Halifax, Lloyds Bank, and Metro Bank, who will see a decrease in their repayment amounts.

We've listed all the lenders cutting mortgage rates below — We’ve listed all the lenders cutting mortgage rates below

Plus, customers with Barclays, Coventry Building Society, Leeds Building Society, Nationwide, NatWest, Skipton, and Virgin Money can also expect changes in the coming days and weeks.

It comes after several lenders cut their fixed mortgage rates in anticipation of interest rates falling for the second time in four years.

For example, Santander and Accord mortgage cut their fixed-rates by up to 0.36%.

Earlier this afternoon, the Bank of England‘s (BoE) Monetary Policy Committee (MPC) cut the base rate by 0.25 percentage points from 5% to 4.75%.

Lenders use the base rate to set their interest rates for savings and borrowing costs, including mortgages.

This reduction means millions of mortgage holders will see their bills decrease.

The central bank’s decision comes after the Office for National Statistics (ONS) reported that inflation stood at 1.7% in September, well below the BoE’s 2% target.

Interest rates had previously risen from historic lows of 0.1% in December 2021, peaking at 5.25% in July 2023, as part of efforts to reduce inflation to the Bank’s target.

A fall in interest rates usually leads to a decrease in mortgage interest rates.

However, the reduction you’ll see depends on the type of home loan you have.

Those on tracker and standard variable rate (SVR) mortgages typically see an immediate change in payments.

What is the Bank of England base rate and how does it affect me?

A tracker mortgage is a type of variable mortgage where your monthly payments rise and fall in line with the Bank of England base rate.

With a tracker mortgage, you’ll usually pay the base rate plus an additional percentage in interest each month.

A standard variable rate mortgage is what you revert to once any initial mortgage term ends.

This rate will change in line with the base rate and is usually higher than any initial introductory rate.

There are currently 643,000 customers on tracker mortgages and 624,000 on SVRs.

TotallyMoney states that today’s 0.25% rate cut will immediately save homeowners £32 a month or £382 a year on the average tracker mortgage.

Those on fixed-rate mortgages won’t see any changes until their deals end and they take out a new one.

Even if your lender has cut rates, the date your repayments actually change will depend on when your payment is due.

We’ve listed all the lenders cutting mortgage rates below.

BARCLAYS

All of Barclays’ UK residential and buy-to-let mortgage products are fixed or otherwise track the BoE base rate.

Therefore, whenever the base rate goes up or down, customers on tracker rates will see their interest rate change accordingly.

If you’ve got a tracker or variable rate mortgage with Barclays, your mortgage rate will fall by 0.25% on December 1.

For new customers, the rates will be amended from November 8.